Industry Week in Review – October 17, 2014

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Aerospace & Defense Update

General Dynamics’ subsidiary, Gulfstream Aerospace Corporation, announced two new Gulfstream business jets, the G500 and the G600 aircraft.  The updated aircraft are more efficient and can travel farther distances than their predecessors at faster speeds.  The list prices of the aircraft are $43.5 million and $54.5 million, respectively, and include state-of-the-art technology including the active control sidesticks and the next-generation enhanced vision system.  Both of these new aircraft feature wide cross-sectioned cabins and will have a capacity of 19, with multiple living spaces.  Some of the suppliers for the new aircraft include Pratt and Whitney Canada, for the PW800 series engine, Honeywell, for the avionics touchscreen display, and Esterline, for the overhead panel.  Deliveries for the G500 are expected to begin in 2018 with the G600 trailing by about 12 to 18 months, entering service in 2019.

This past week at the Association of the U.S. Army (“AUSA”) annual meeting, it became evident that Army leaders are optimistic about the future for acquisition reform.  The increased focus on competition and attention from Congress are both signs that reform will, in fact, begin to happen.  Technology, in particular, will be a major target for increased competition.  For example, the forecasted plan is to get a request for proposals on the street very quickly for manpack radios and then to run all qualified proposals through operational tests.  The goal is to drive competition with these updated processes in order to ultimately increase innovation in all that the Army does.  Furthermore, in order to identify programs that require update, the new Army Warfighter Assessments annual war game will test new technologies and concepts and promises to stimulate rapid change for years to come.  The next conference of the season will be the National Business Aviation Association (“NBAA”) Conference, held from October 21st to 23rd.

Government Technology Solutions Update

In an effort to implement the Government Accountability and Transparency Board’s recommendations, the Federal Acquisition Regulations (“FAR”) Council has set an October 1, 2017 deadline for Federal agencies to begin using the Procurement Instrument Identification (“PIID”) numbering system.  Use of PIID will be required for all contracting actions after the effective date and will be a unique government-wide identifier for a minimum of 20 years.  The 13 to 17 alpha and / or numeric sequence will convey the contracting office, the fiscal year of award or action, and the type of contract or vehicle.  This effort by the PAR Council is an attempt to achieve consistent and accurate procurement data across the Federal government.

The Council of Inspectors General (“IG”) analyzed a sample of 77 commercial cloud contracts across 19 civilian agencies worth approximately $1.6 billion and found that the majority failed to implement federal requirements and best practices.  All contracts did not follow specifications recommended in the federal cloud computing guidelines and best practices, while 59 of the 77 systems were not compliant with the Federal Risk Authorization and Management Program (“FedRAMP”).  As a result of these findings, the Council of IG recommended to the Office of Management and Budget that agencies create a plan to enforce FedRAMP compliance, use standardized contract clauses when adopting cloud computing technologies, establish process and reporting mechanisms, and conduct routine reviews of agencies.

Big Movers

Textron, Inc. (Up 10.4%) – Shares were up this week after the Company announced that it will open a larger service center at Paris-Le Bourget Airport in order to perform maintenance and modification work for Europe’s Beechcraft, Cessna, and Hawker aircraft owners.

Rolls Royce (Down 10.3%) – Shares were down this week after the Company warned that revenues may fall as trade sanctions against Russia take effect.

Relevant Transactions

Novaria Group acquired “substantially all” of the assets of Weatherford Aerospace, a provider of aircraft wing skins and unique services related to aerospace products.  Terms of the deal were not disclosed.

View Systems, Inc. to merge with Potomac River Group LLC, a provider of specialized technical support services to the U.S. Federal Government.  Terms of the deal were not disclosed.

G.E. Capital Aviation Services Limited to acquire Milestone Aviation Group Limited, a lessor of helicopters.  The deal is worth an estimated $1.78 billion.

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Industry Week in Review – October 10, 2014

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Aerospace & Defense Update

This past Tuesday, Boeing released its biennial World Air Cargo Forecast at the International Air Cargo Forum and Exhibition in Seoul, South Korea.  The forecast projects an annual growth rate of 4.7% over the next decade, with global airfreight traffic more than doubling by 2013.  According to Boeing, an improvement in global industrial production over the last 18 months, as well as anticipated long-term trade growth trends, are key drivers of the expected increase in global airfreight traffic.  Specifically, the Asia – North America and Europe – Asia markets are forecasted to lead air cargo traffic volume, while Asian markets are expected to demonstrate the highest growth rates over the next 20 years.  Deliveries of freighter aircraft are also expected to grow in response to the expected increase in air cargo.  In its forecast, Boeing projects deliveries of 840 new airplanes and 1,330 passenger-to-freighter conversions during the next decade.

Airbus Group is considering selling a 10 percent stake in Dassault Aviation as part of its plan to unwind its 46 percent holding in the company.  Additionally, Airbus would further reduce its ownership of Dassault through a shareholder buyback that was approved last month.  Ultimately if Airbus decides to pursue this route, the combined value of the deals could be worth close to $1.6 billion.

Government Technology Solutions Update

The Congressional Budget Office’s (“CBO”) latest estimates show that the Federal Government budget deficit has fallen to $486 billion, the lowest level in six years.  Boosted government revenues, as a result of the recovering economy, as well as the imposed cuts on Federal agency operating budgets have significantly improved the $1.4 trillion record deficit in 2009.  However, the CBO cautions that the deficit will balloon in future years as the Baby Boomer generation starts to claim Social Security and Medicare benefits if these programs are not changed.  In the next week, the Treasury Department and the White House Budget Office will issue an official report on the budget.  The findings are expected to mirror CBO’s estimates.

Deltek has released a report outlining the 20 largest contracts expected to be released in GFY2015.  The combined value of the listed vehicles is approximately $206 billion, up $45 million from GFY2014, with a mix of contracts split fairly evenly between defense and civilian agencies.  In past years, top contracts had largely been dominated by defense contracts; however, GFY2015 saw a shift towards IT procurement which represent 11 of the top 20 contracts.  The General Services Administration vehicle for IT services, Alliant II Unrestricted, holds the top spot on the list with an estimated ceiling value of $50 billion.

Big Movers

Oshkosh Corporation (Down 9.8%) – Shares were down this week after the Company announced plans to lay off more than 300 workers as a result of decreased military truck orders.

Relevant Transactions

Novetta Solutions, LLC acquired Digital Results Group, Inc, a leading provider of innovative web-enabled software and technology solutions that fuse, in real-time, sensor and intelligence data to support operations from the tactical edge to the global enterprise primarily for defense customers.  Terms of the deal were not disclosed.  KippsDeSanto & Co. served as financial advisor to Digital Results Group, Inc.

Channel Technologies Group, LLC acquired Materials Systems Inc., a manufacturer of piezoelectric ceramics, transducers, and complex sonar and navigation systems for defense and commercial customers. Terms of the deal were not disclosed.

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Industry Week in Review – October 3, 2014

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Aerospace & Defense Update

Bombardier Inc. announced a firm order for 40 of its new CSeries passenger jets.  The Ireland based company, Macquarie AirFinance Ltd., subsidiary of the Australian Company, Macquarie Group, Ltd., is the third lessor to order the 135-seat CS300 model and has options to purchase another 10 aircraft.  The purchase preceded a boost of Bombardier’s stock price by 4.3% to $3.28USD as Bombardier aims to challenge the narrowbody-jet duopoly of Boeing Co. and Airbus Group.

As fiscal 2014 winds down, the Department of Defense (“DoD”) and the armed forces have released a multitude of new contracts totaling $2.85 billion.  Of the 93 contracts released, some of the big winners included Lockheed Martin with a $246.6 million modification to the F-35 drag chute system and Atlanta’s Science Research Corp. with a $75.6 million contract for procurement of support services.  The majority of spending came from the Defense Logistics Agency with $800 million on an array of contracts.

Government Technology Solutions Update

On October 1st, NASA awarded 56 infinite delivery / infinite quantity (“IDIQ”) contracts under the Solutions for Enterprise-Wide Procurement Five (“SEWP V”) vehicle to 43 technology firms.  Combined, the awards totaled $20 billion over the contract’s five year base period – the total period of performance is ten years (five-year base plus one five-year option).  Agencies are expected to use this SEWP V for purchasing advanced IT and computer technologies, processing capabilities, and network equipment.  The current awardees are divided into two groups: “Group A,” which provides computer based systems, and “Group D,” which provides networking, security, video, and conferencing solutions.  Two additional groups, “Group B” and “Group C” are expected to be awarded in the next week to Service-Disabled Veteran-Owned small businesses and other small businesses respectively.

The Office of Management and Budget (“OMB”) has set standardized metrics for agencies to collect, measure, and track financial awards.  The publicized data will be used to increase transparency of agency awards in order to reduce administrative burden, waste, and fraud.  The OMB states that agencies may save up to $50 million per year by using these standardized metrics to reduce improper payments.

Big Movers

American Science and Engineering (Down 14.0%) – Shares were down this week after the Company reported earnings data that missed analysts’ expectations.  The company’s revenues decreased to $35.5 million from $43.1 million in the second quarter comparted to the first quarter of fiscal 2014.

Relevant Transactions

MacDonald, Dettwiler, and Associates Ltd. acquired Advanced Systems, a line of business from General Dynamics Advanced Information Systems, Inc., that has in-depth experience in development and application of radar and other information sensors for the U.S. Government.  Terms of the deal were not disclosed.

Air Industries Group acquired AMK Technical Services, a provider of welding and machining services for diversified aerospace and industrial customers.  The deal is worth an estimated $6.8 million.

Fastenal Company acquired certain assets from Av-Tech Industries, a wholesale distributor of aerospace fasteners, electronic components, and miscellaneous aircraft parts.  Terms of the deal were not disclosed.

Esterline Technologies Corporation acquired Barco N.V.’s Aerospace and Defense Display business, a manufacturer of harsh-environment displays and visualization systems.  The deal is worth an estimated $190 million.

Exelis, Inc. completed its spinoff of Vectrus, Inc.; the new company operates as a provider of infrastructure asset management, information technology, and network communication services, and logistics and supply chain management.  The market cap for the new company is ~$227 million.

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Industry Week in Review – September 26, 2014

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Aerospace & Defense Update

Boeing enhanced its footprint in Africa this week, as the company announced it received an Ethiopian Airlines order worth $2.1 billion.  The deal, which is for 20 737 Max 8 aircraft and includes an option to buy an additional 15 737 Max 8s, is the largest order the aircraft manufacturer has received from an African based airline to date.  The order comes in response to increased demand throughout Africa, as demonstrated by a 4.9% growth in the region’s passenger air traffic for July, according to the International Air Transport Association.  Currently, Ethiopian Airlines has 68 planes in operation, 16 of which are various Boeing 737 models.  The addition of 20 planes to Ethiopian Airlines’ fleet positions the company to capitalize on the growth trend in the African aviation industry and establish itself as a major player in the region.  Boeing’s ability to conduct deals with foreign customers is largely contingent on availability of funding provided through loans granted by the U.S. Export – Import Bank (“Ex – Im Bank”).  As such, Boeing’s business with foreign customers relies heavily on the continuation of the Ex – Im Bank’s charter, which is scheduled to expire at the end of the month.

Government Technology Solutions Update

The Department of Defense (“DoD”) is expected to release a memo in late October allowing military branches to directly procure cloud services.  The expected policies will require military branches to provide detailed business case analyses for cloud procurement decisions and to comply with acquisition requirements and cybersecurity mandates.  This initiative is a direct result of the rescindment of Defense Information Systems Agency’s (“DISA”) position as the Pentagon’s exclusive cloud broker.  Though DISA will no longer be the only procurer for cloud solutions, it will still be involved in securing the DoD’s IT systems.

Protests against the $7.2B Army Intelligence & Security Command’s (“INSCOM”) Global Intelligence Support Services (“GI”) indefinite delivery / indefinite quantity (“IDIQ”) have already started for both the small business and full and open categories.  Both a small business and a large business filed protests less than two weeks after the contract was announced – September 22nd and 19th respectively.  The Government Accountability Office’s decisions on these protests are due between December 29th and 31st.  The GI contract was awarded to 11 large businesses and ten small businesses to support intelligence and security operations, information operations, facilities mission support, and sustainment services.

Big Movers

Ducommun Incorporated (Up 5.1%) – Shares were up this week after the Company was awarded a contract with Boeing to produce ground and flight spoilers for the 737 Max.

AAR Corp. (Down 11.0%) – Shares were down this week after the company reported first quarter earnings and revenue that missed analysts’ expectations.  The company reduced its earnings estimate from $1.80 – $1.90 per share to $1.65 – $1.75 per share.

Relevant Transactions

AIM Aviation Ltd. acquired Altitude Aerospace Interiors Ltd., a provider of aerostructure components and custom cabin interiors.  Terms of the deal were not disclosed.

TriMas Corporation acquired Allfast Fastening Systems, Inc., a manufacturer of solid and blind rivets, blind bolts, and installation tooling for the aerospace industry.  The deal is worth an estimated $360 million.

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Industry Week in Review – September 19, 2014

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Aerospace & Defense Update

Airbus Group has announced that after a detailed and comprehensive portfolio assessment, it will divest some of its subsidiaries and business units within its defense and space division.  These divestitures will include Fairchild Controls, Rostock System-Technik, AvDef, ESG, and Atlas Elektronik.  The aerospace and defense conglomerate may also consider divesting its commercial and para-public communication business.  The move will further develop the defense and space division just a year after Airbus combined the two units.  Focus will shift to industrial alternatives as a means for the division’s security and defense electronics businesses and for future growth.

Timken Co. has also announced that it will restructure its aerospace business.  In efforts to improve performance, Timken will eliminate the management structure for that business and seek a buyer for its aerospace MRO parts business.  Specifically, Timken will close an engine repair and overhaul operation in Arizona and an aerospace bearing plant in England.  The company will continue to explore ways to streamline operations and generate growth.

Government Technology Solutions Update

This past week, both the House and the Senate passed a Continuing Resolution (“CR”) to keep the Federal Government open until December 11, 2014.  The bill includes an amendment to authorize the training and equipping of Syrian rebels to fight the Islamic State of Iraq and the Levant and has several provisions to address other current key issues; however, it does not address budget decisions for individual government agencies.  Additionally, the bill does not block the one percent pay raise for government workers in 2015.

A recent report released by Deltek has found that Federal agencies are increasingly relying on indefinite delivery / indefinite quantity (“IDIQ”) contracts to accomplish their technology and policy goals.  The Federal Information Technology Task Order Vehicle Trends report found that 50% of IT dollars from 2010-2013 were spent via IDIQ task orders.  For government contractors, IDIQs can often provide longer-term revenue streams and more predictable scopes of work.  However, the increased use of task order contracts has also lengthened pre-request for proposal and post-award timelines, as a result of agencies honing in on required capabilities and award protests.

Big Movers

API Technologies Corporation (Up 8.8%) – Shares were up this week after the Company announced that it has been awarded a new patent for antenna technology for GPS and asset tracking applications.

TASER International, Inc. (Down 12.5%) – Shares were down this week following an insider trading allegation.

Relevant Transactions

Valence Surface Technologies, portfolio company of Thrive Capital, acquired Blue Streak Finishers, a provider of processing and related services for large complex aerostructures.  Terms of the deal were not disclosed.

Charlesbank Capital Partners acquired HDT Global, a provider of solutions for government, military, commercial, and industrial customers, from Metalmark Capital.  Terms of the deal were not disclosed.

Cobham plc completed its acquisition of Aeroflex Corporation, the transaction, previously announced on May 20th, has now successfully closed.  The deal is worth an estimated $1.46 billion.

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Industry Week in Review – September 12, 2014

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Aerospace & Defense Update

Earlier this week, Ryanair entered into an agreement with Boeing to purchase as many as 200 jets from the company’s 737 Max family.  The Irish-based discount carrier announced an order for 100 of the Max 200 models, with an option to acquire up to 100 more.  At list prices, the deal for the initial 100 aircraft is worth approximately $11 billion.  Deliveries of the Max 200, which promises an 18% gain in fuel savings over other narrow-body models, are scheduled to start in 2019 and run until 2023.  Features of the aircraft include upgraded engines and 197 seats, compared to 189 on the 737-800 model.  The capacity to carry additional passengers is projected to add roughly $1 million a year in revenue for each jet.  The Ryanair order, which comes on top of a contract for 180 737-800s, further supports the airline’s goal to double in size over the next 10 years.

Bombardier finally resumed test flights of its CSeries Jet after one of the aircraft’s Pratt & Whitney engines failed back in May.  Since the failure, Pratt & Whitney has made a number of modifications to the geared turbofan engine’s oil lubrication system, which was determined to be the root cause of the failure.  Keeping the jet airborne and conducting additional test flights is critical to the company’s ability to meet its target for a CSeries debut in the second half of 2015.  Project development costs for the aircraft are now roughly $4.4 billion, nearly $1 billion more than originally expected.

Government Technology Solutions Update

On September 9th, House Appropriations Chairman, Hal Rogers, introduced what he referred to as a “clean” short-term Continuing Resolution (“CR”) to prevent a government shutdown at the end of the Government Fiscal Year on September 30th.  The House Committee on Rules is currently reviewing the introduced legislation, which would continue agency, programs, and services funding at 2014 levels, an annual cap rate of $1.0 trillion, until December 11, 2014.  The bill also includes several provisions to prevent detrimental changes to government programs, such as an extension for expiring Department of Defense activities; however, all such extensions are funded within the annual cap of $1.0 trillion.  In his introductory statement, Rogers stated the bill is free of “controversial riders” and does not seek to change existing federal policies.  Additionally, he emphasized this bill is a temporary measure that “does not reflect the changing needs of the nation or new budget priorities” and urged the Senate leadership to push completion of the GFY2015 Appropriations legislation.

Big Movers

Leidos Holdings, Inc. (Down 7.6%) – Shares were down this week after the Company reported a 10% year over year decline in revenue compared to the second quarter of last year.

Alliant Techsystems Inc. (Up 6.2%) – Shares were up this week as investors anticipate greater procurement of weapons systems in response to rising geopolitical tension in the Middle East.

Relevant Transactions

The CapStreet Group, LLC acquired Red Aviation LLC, a provider of maintenance and repair services, as well as aftermarket sales, for business jet parts and engines.  Terms of the deal were not disclosed.

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Industry Week in Review – September 5, 2014

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Aerospace & Defense Update

General Dynamics secured a contract to deliver 589 of the company’s Scout Specialist Vehicles to the British Army beginning in 2017.  The $5.76 billion contract is the Ministry of Defense’s largest order for armored vehicles in roughly 30 years, illustrating the government’s commitment to modernize its military capabilities.  General Peter Wall, Chief of the British General Staff, commented on the significance of the contract saying, “the Scout Family is a transformational program that will refresh our armored capability and ensure the army remains a first-tier maneuver force.”  The Scout medium-weight armored vehicles will be used to replace an aging fleet of vehicles that has been in service for 40 years.  Currently, six versions of the vehicle have been designed and can perform roles including, but not limited to, reconnaissance and strike, joint fire control, ground-based surveillance, and repair and recovery.

On September 4th, Esterline Corporation announced that it is divesting three of its business units: Eclipse Electronic Systems, Pacific Aerospace & Electronics, and Wallop Defence Systems as well as a small distribution operation.  Curtis Reusser, Esterline’s CEO, said that although all three operations are good businesses, they would benefit from a closer strategic alignment with a different owner.  The divested businesses will be reported as discontinued operations beginning in 4Q14.

Government Technology Solutions Update

The One Acquisition Solution for Integrated Services (“OASIS”) indefinite quantity indefinite delivery (“IDIQ”) from the General Services Administration (“GSA”) is now open for agency business.  The notice, issued by the GSA on September 3rd, allows government agencies to begin purchasing professional services from companies that were awarded full and open awards back in May.  The OASIS Small Business notice to proceed was issued in late June.  Deltek estimates that the types of services OASIS provides cover a $60.0 billion market; the GSA could potentially capture 5-10% market share.  The Air Force is also expected to be a large customer with an estimated $1.4 billion in annual contract dollars flowing through OASIS.

Federal employees may receive a 1.0% pay raise in the near future due to President Obama’s recent proposal.  The raise is expected to take effect in January 2015, unless congress passes legislation blocking this proposal.  Years of pay freezes in the Federal Government have created a pay gap between Federal and private sector employees.  Without addressing this pay gap, the president of the National Treasury Employees Union, Colleen Kelley, feels Federal agencies will have a difficult time recruiting new workers to replace the 600,000 Federal employees that are eligible to retire by 2017.

Big Movers

TASER International, Inc. (Up 16.6%) – Shares were up this week after the Company announced that the New York Police Department will test the company’s body cameras.

Relevant Transactions

Information Innovators Inc. acquired Global Net Services, Inc., a provider of IT systems engineering, software development, and related services focused primarily on serving the Health IT solutions needs of the Food and Drug Administration.  Terms of the deal were not disclosed.

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Industry Week in Review – August 29, 2014

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Aerospace & Defense Update

On August 25th, Boeing Co. won an $8.8 billion order from BOC Aviation Pte (“BOC”), the Singapore-based aircraft leasing arm of Bank of China Ltd.  The order, consisting of 82 planes including 50 upgraded 737 Max 8s, 30 737-800s, and two wide-body 777-300ERs, is indicative of the company’s efforts to meet surging travel demand throughout Asia.  This order immediately follows BOC’s purchase of 43 jets from Airbus last month.  Many of BOC’s new aircraft were previously reserved for other buyers who subsequently cancelled their orders, including eight aircraft that the company has already received.  This purchase will help the company continue its transition to the 737 family and will ensure that BOC remains in the younger, more competitive end of the market with a fleet of the most fuel-efficient planes.  BOC expects to receive 27 planes per year starting in 2015, while simultaneously discarding 20 – 30 outdated planes annually.  BOC’s expansion strategy is supported by an expected 5.7% growth rate in air travel demand in Asia over the next four years.

The U.S. Special Operations Command (“SOCOM”) has signed a potential five-year $187 million contract for new Carl Gustav recoilless rifles and ammunition from the Swedish defense firm, Saab.  The agreement, which is for an initial order of $14.3 million, may reach upwards of $187 million over the next five years if SOCOM exercises its option to place additional orders for the 84mm recoilless system.  The U.S. adopted the weapon in 2011 when commanders in Afghanistan issued a special request for the system due to its proficiency in tight, close-quarters.

Government Technology Solutions Update

On August 20th, the Office of Management and Budget (“OMB”) released its Sequestration Update Report for Government Fiscal Year (“GFY”) 2015.  In it, the OMB detailed its estimates on the status of current appropriations levels compared to the capped levels implemented under the Budget Control Act of 2011.  Under the Senate’s currently proposed appropriations bills, defense agencies would face a $44.7 billion cut in discretionary spending while non-defense agencies would see a $27.6 billion cut compared to levels set by the 2013 Bipartisan Budget Act.  The currently proposed appropriations bills call for an additional $11.0 million cut to defense agencies.  Furthermore, the report determined that sequestration would not be a factor in GFY2015 as discretionary budget allocations remained in line with levels set by the Consolidated Appropriations Act of 2014.

The Department of Defense (“DoD”) is entertaining bids on its Defense Health Management System Modernization program, an $11.0 billion Indefinite-Delivery / Indefinite-Quantity Defense Health (“IDIQ”).  The contract will be used to modernize the DoD’s health records management system by acquiring and deploying an integrated suite of clinical and coding systems.  Responses to the Request for Proposal (“RFP”) are due on October 9th, and awards will be made in the third quarter of GFY2015.

Big Movers

Comtech Telecommunications Corp. (Up 8.3%) – Shares were up this week after the Company confirmed that it is exploring strategic alternatives, including a possible merger or sale, to enhance shareholder value.

Smith & Wesson Holding Corp. (Down 14.7%) – Shares were down this week after the Company released its first quarter earnings report, showing an 18% decline in sales and a 45% decline in net income compared to the first quarter of last year.

Relevant Transactions

J.F. Lehman & Company acquired Aeronautical & GI Holdings Ltd., a leading producer of proprietary situational awareness and LED lighting systems for naval vessels, military and commercial aircraft, and military ground vehicles.  Terms of the deal were not disclosed.

AAR Corp. acquired Cool Containers LLC, a manufacturer and supplier of temperature controlled cargo solutions.  Terms of the deal were not disclosed.

Datapipe, Inc. acquired Layered Technologies, Inc., a provider of enterprise secure cloud, dedicated, and hybrid hosting services to federal, state, and local government agencies.  Terms of the deal were not disclosed.

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Industry Week in Review – August 22, 2014

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Aerospace & Defense Update

On August 20th, the U.S. Navy selected five companies to develop and install a new shipboard tactical electronic network on its fleet over the next eight years.  The indefinite-delivery / indefinite-quantity contract was valued at $2.53 billion to install the shipboard network known as Consolidated Afloat Networks and Enterprise Services (“CANES”) aboard 180 units by 2022.  The five winners include:  BAE Systems Technology Solutions & Services, Inc., General Dynamics C4 Systems, Global Technical Systems, Northrop Grumman Systems Corp., and Serco, Inc.  Currently, nine destroyers have been outfitted and sixteen more are in progress.  The five companies will continue to compete for CANES delivery orders throughout the eight year period.  CANES relies on commercial off-the-shelf hardware and open systems architecture to keep the system’s costs well below initial projections.  A full deployment decision to authorize the program is expected by spring 2015.

The U.S. Air Force awarded Boeing a five year, $216 million contract to upgrade the fleet of 59 KC-10 aerial tanker / transports with new cockpit avionics.  Improvements will be made to the communication, navigation, surveillance, and air traffic management system in order to ensure that the fleet will comply with expected standards updates.  The Federal Aviation Administration and the International Civil Aviation Organization are working to mandate changes by 2015 that tighten the requirements for flying in civilian airspace without a permit, a matter that will significantly affect mission routes and fuel consumption.

Government Technology Solutions Update

This week, the Department of Labor (“DoL”) announced that modernization of their information technology (“IT”) infrastructure is a top priority despite budget stagnation.  To date, the DoL has one of the lowest Federal IT budgets and it has not seen a significant budget increase since 2010.  While limiting, the DoL now has significant room for change.  The department is currently consolidating internal customers into a centralized infrastructure, moving its financial system to a Federal shared service provider, and updating its IT governance structure to support these new projects.

Big Movers

TASER International, Inc. (Up 12.9%) – Shares were up this week as the Company announced strong revenue growth. Since the same quarter one year prior, revenues rose by 15.5%.

OHB Technology AG (Up 5.3%) – Shares were up this week as the Company began deployment of satellites for the European Space Agency in order to kick-off new generation of global-positioning satellites.

Relevant Transactions

Standex International Corporation acquired Enginetics Corporation, a leading producer of aircraft engine components for all major aircraft platforms.  The deal is worth an estimated $55.2 million.

Defense & Aviation Wiring Inc. to acquire the Manufacturing Division of Rutter, Inc., a producer of enhanced radar systems, including oil spill detection, ice navigator, and small target detection systems.  Terms of the deal were not disclosed.

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Industry Week in Review – August 15, 2014

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Aerospace & Defense Update

The U.S. Army recently selected Textron’s Bell division in partnership with Lockheed Martin and the team of Boeing and Sikorsky in a Joint Multi-Role program to each build a helicopter that could effectively replace hundreds of Black Hawk and Apache models.  The Army intends to use the two prototypes to assist in the evaluation of the service’s Future Vertical Lift helicopter replacement program, which could cost an estimated $100 billion.  The companies will leverage advances in engine and other technologies in the development of their demonstrator designs, which are expected to result in new helicopters being operational by the mid-2030s.  Bell and the Sikorsky and Boeing team are offering designs that make use of rotors capable of moving from their conventional positions for takeoff and landing to act as propellers for forward flight.  The long-term plan focuses on meeting the uptick in demand for a new generation of faster and more durable rotorcraft.

This fall, Boeing intends to announce plans to increase production rates of its 737 single-aisle jet.  Over the past four years, the company has escalated its production rates across all airplane programs 17 times.  An increase in production output before the end of the decade would facilitate Boeing’s efforts to open new and earlier delivery slots for customers, while helping to narrow a sales gap with Airbus’s A320neo.  737 Max jet production rates of 42 aircraft per month are expected to rise to 52 a month in 2018 or 2019 in response to an increase in global demand for single-aisle, narrow-body jets.

Government Technology Solutions Update

The Department of Defense (“DoD”) announced this week that it will identify a set of five pilot programs in the next twenty days to test commercial cloud solutions for sensitive data storage.  These pilot programs are initial steps towards giving the DoD confidence in moving its networks in the direction of agility and security at lower cost.  The move is part of a larger network modernization strategy driven by the Joint Information Environment.

Similarly, the Securities Exchange Commission (“SEC”) is moving raw data files to the cloud in order to support programs such as the Market Information Data Analytics System (“MIDAS”), as well as a host of other modernization projects.  The efforts are expected to save the SEC over $3 million a year and opens up opportunities for companies with big data analytics capabilities.  For example, MIDAS is able to sort through more than one billion trading records a day, a process that would take weeks or months without large-scale analytics capabilities.  The SEC’s move to the cloud has significantly increased internal capabilities as well as expanded the amount of trading information that the SEC makes available to the public.

Big Movers

Magellan Aerospace Corporation (Up 6.5%) – Shares were up this week after the Company released its second quarter earnings.  The Company reported gross profit and net income for 2Q14 of $34.5 million and $13.6 million, respectively, up from 2Q13 gross profit of $28.8 million and net income of $11.2 million.

Relevant Transactions

Denel SOC Limited to acquire BAE Systems Land Systems South Africa Proprietary Limited, a designer, developer, and manufacturer of mine protected armored vehicles and turret system.  The deal is worth an estimated $80.1 million.

Novetta Solutions, LLC acquired SigInt Technologies, LLC, a provider of advanced signals intelligence and intelligence analysis products and services.  Terms of the deal were not disclosed.

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